Last updated on February 2nd, 2021 at 12:47 am
Employees all over Canada are scrambling to find out whether they can deduct home office expenses like their internet, property tax, and heating costs. Unfortunately, the rules around these deductions are confusing. For example, what exactly can you deduct? Who is eligible? And how do you deduct home office expenses? This article will answer these questions and hopefully help you save you money this upcoming tax season.
- Can You Deduct Home Office Expenses?
- Why Won’t Your Employer Issue a T2200?
- How to Deduct Home Office Expenses as an Employee
- Eligible Home Office Expenses for Employees
- Ineligible Home Office Expenses for Employees
- How to Calculate Your Home Office Expenses
- My Home Office Expenses
- Is it Worth Deducting Home Office Expenses?
- Recent Changes for 2020
- Form T2200S: Declaration of Conditions of Employment for Working at Home Due to COVID-19
- Form T777S: Statement of Employment Expenses for Working at Home Due to COVID-19
- Thanks for Reading!
Can You Deduct Home Office Expenses?
There are a few conditions which dictate whether you can deduct home office expenses as a salaried employee. The first condition is that you must work in your home office the majority of the time. The CRA defines this as more than 50% of the time over the course of the year. If you do not meet that condition, you may still be able to deduct home office expenses if you regularly use your home office on a regular and continuous basis for meeting clients, customers, or other individuals in the course of your employment duties.
Salaried employees who are working from home are more likely to qualify under the first condition. The second condition is a bit tricky, as the CRA interprets “meeting clients” as phone calls and in-person meetings only. Its formal definition does not include meeting with clients virtually over Microsoft Teams or Zoom – how antiquated, I know.
The last condition, given that you met one of the first two conditions, is that your employer must have issued you a copy of form T2200, “Declaration of Conditions of Employment.” This form explains to the CRA that your employer expects you to work from home as a condition of your employment. For most people, this is the main roadblock preventing them from deducting home office expenses.
Why Won’t Your Employer Issue a T2200?
These forms are only issued to employees working from home as a distinct condition of their employment. If you’re temporarily working from home due to COVID-19, for example, your condition of employment hasn’t necessarily changed. If it’s expected that you’ll go back to the office after COVID-19 has ended, your employer won’t go through the hassle of temporarily updating your employment conditions just so you can get a T2200.
Also, by issuing you a T2200, your employer is telling the CRA that they will no longer incur office expenses for you. This means that your employer can no longer deduct your office chair, desk, stationery, heating, and other expenses associated with providing you with a workspace. As a result, employers aren’t going to issue you a T2200 unless your conditions of employment have really changed to working from home for the foreseeable future.
How to Deduct Home Office Expenses as an Employee
Perhaps you work at Spotify, and – like many tech-sector employers – your office has moved to a work from home model. Over the past few months, the human resources department at your company has worked hard to update your conditions of employment. They may have also had you submit some paperwork or confirm that your home office is safe to work in. For example, my employer asked if I had a fire extinguisher and a first aid kit. So, what’s next? How do you go about deducting home office expenses?
Form T2200: Declaration of Conditions of Employment
If they haven’t already, your employer should have issued you a form T2200. Once you’ve obtained that form, you’ll be able to see some of the expenses your employer expects you to pay for to maintain your home office.
The most relevant section of T2200 for salaried employees includes this question: Did you require this employee to pay other expenses for which they did not receive any allowance or reimbursement? If yes, indicate the type of expenses. In this section, your employer may list some of the expenses they expect you to be responsible for as you maintain your home office.
Another section you’ll likely see filled out poses this question: Did you require this employee to pay for expenses for which they did or will receive a reimbursement? This section allows your employer to document the expenses they’ve requested that you pay for but that they will reimburse you for later on. The purpose here is to avoid both you and your employer getting a deduction for the same expenses.
Form T777: Statement of Employment Expenses
After receiving your T2200, the next relevant form you should review is called the “Statement of Employment Expenses,” or form T777. This is where you’ll record the total amount of money you’ve spent on various types of office expenses. You will submit this form when doing your taxes and use it to calculate the total amount of expenses you can claim on line 22900, “Other Employment Expenses”, of your income tax return.
The first relevant section of form T777 for salaried employees is the “Expenses” section. Here you can total the amount of money you spent on eligible office supplies and other expenses. Next, in the section called “Calculation of work-space-in-the-home” expenses, you can total the eligible expenses relating to maintaining and using your home office. But what home office expenses are eligible for salaried employees?
Eligible Home Office Expenses for Employees
The general guidelines for determining eligible home office expenses are:
- Under your contract of employment, you had to provide and pay for the supplies.
- You used the supplies directly in your work.
- Your employer has not repaid and will not repay you for these expenses.
But, despite these broad guidelines, the list of eligible home office expenses for employees isn’t as long as one would hope. There are plenty of expenses that are only eligible for commission-based workers or the self-employed to deduct. For salaried employees who are required to maintain a home office as a condition of their employment, the list of eligible expenses small. Here’s a list of the commonly asked about home office expenses that you can deduct:
- Office supplies like paper, pens, stamps, toner, and ink cartridges.
- A portion of your home’s rent, electricity, and heating costs.
- Cleaning supplies and maintenance costs pertaining to your home office.
- A “reasonable” cellular plan, in proportion to how much it was used for your employment.
Ineligible Home Office Expenses for Employees
Usually, when one thinks of home office expenses, they think of their computer, chair, desk, and other big-ticket items. Unfortunately, the CRA has another view of these items. Generally, any capital purchase cannot be considered an eligible home office expense. Here’s a list of the commonly asked about ineligible home office expenses:
- Office chairs and desks.
- Computers, laptops, phones and tablets.
- Printers, scanners, and fax machines.
- Briefcases and calculators.
- Home internet.
- Mortgage interest.
- Property taxes.
- Home insurance.
- Depreciation of home office equipment.
Many people are confused about whether they can deduct property taxes and home insurance. This confusion stems from the fact that you can deduct these expenses as a commission-based employee but not as a salary-based employee.
How to Calculate Your Home Office Expenses
For some expenses, like your office pens and paper, the amount you can deduct is easy to figure out. Simply add up all of the money you’ve spent on these eligible items for your use while working from home. Just be sure to keep your receipts should the CRA ever come knocking.
To determine how much of your rent, heating, and electricity costs you can deduct, first calculate how much of your home is allocated to your workspace. The typical method is to measure your workspace area and divide it by your home’s total finished area. Using a 2-bedroom condo as an example, if you turned one of the bedrooms into an office, you could take that room’s size in square feet and divide that by the entire square footage of your condo. Consider a 750 square foot condo with a 250 square foot room used as an office: you’d be able to justify deducting 33% of your rent, insurance, and heating and electricity costs.
Maintenance costs need to be handled carefully. For example, installing new kitchen cabinets wouldn’t be an eligible home office expense. However, if you had your carpets cleaned, you could deduct the amount of carpet cleaning attributed to your workspace. For some maintenance expenses, you may be able to deduct them in their entirety if they were only incurred to maintain your workspace.
My Home Office Expenses
Given that I’m a homeowner, my heating and electricity costs are the main expenses I’m deducting. My office space is approximately 100 square feet – 10% of my home’s size – so I can deduct 10% of my heating and electricity costs. I also bought a new desk chair for my home office, but I cannot deduct any of that expense. I haven’t bought any stationery or other office supplies since establishing my home office, so I don’t have any of those expenses to deduct either.
Is it Worth Deducting Home Office Expenses?
The answer might surprise you, but for many people, the answer is “no.” In my case, the total amount of money I’ll get back is about $1,500 in heating and electricity costs, multiplied by 10%, multiplied by my marginal tax rate. So approximately $60. To me, because I’m a personal finance enthusiast, this is worth it. But for others, it’s too much of a bother to get your employer to change your employment conditions and have them submit a form T2200. And even if you have a T2200, going through all of this work and accounting just for $60 is rather marginal.
If you rent – and spend a significant amount doing so – the answer is likely a little different. Consider the condo example I shared above. If that person was living in Toronto and paying $2,000 to rent their 750 square foot condo, the total amount they could deduct would be 33% of their $24,000 paid in rent for the year. This comes out to just about $8,000. If they were in the topmost tax bracket, they would be eligible for a tax return of around $4,000. In this situation, deducting your home office expenses is clearly worth it.
Recent Changes for 2020
In November of 2020, the Liberal government announced a new $400 home office expense income tax deduction. With so many Canadians now working from home, the purpose of this new deduction is to alleviate the burden on employers who might otherwise need to issue T2200s and update the employment conditions of their employees. It will also help workers as they can earn the deduction without having to keep detailed records of their home office expenses.
The new rules allow employees to claim $2 for each day they worked from home during any period of at least four consecutive weeks in 2020. The maximum deduction is $400, so an employee that worked from home for 200 days would get the full deduction.
Alternatively, employees can choose to itemize their home office expenses as done before with the T777 form. The CRA has made the process easier by launching two new simplified forms: T2200S and T777S.
Form T2200S: Declaration of Conditions of Employment for Working at Home Due to COVID-19
This new form is available for employees that have worked from home due to COVID-19. If you choose to itemize your home office expenses, you must get this form signed by your employer and keep it for your records.
Form T777S: Statement of Employment Expenses for Working at Home Due to COVID-19
This new form is a simplified version of the T777. It provides two options. The first option is to claim the “temporary flat rate method” of $2 per each day worked from home in a period of at least four consecutive weeks. This flat rate method allows for a maximum deduction of $400. The second option is similar to the original T777: you claim the eligible expenses you paid for to maintain your home office. The list of expenses is the same as before, with one addition: home internet! Yes, home internet access fees are now considered eligible expenses for employees working from home.
Thanks for Reading!
Thank you for reading my article on home office expenses for employees! Has your workplace moved to a work from home model as well? I’d love to hear about it! Also, consider checking out some of my other recent articles.